US, WASHINGTON (ORDO NEWS) — The People’s Bank of China on Friday left the base lending rate unchanged, not meeting expectations for a lower cost of borrowing in an economic downturn due to the effects of the coronavirus pandemic. Therefore, the regulator is likely to soon have to cut lending rates in order to free up funds.
The base rate for one-year loans for first-class borrowers (LPR) remained at 4.05%. The country’s Central Bank also maintained a five-year LPR at 4.75%.
This surprise helped maintain the yuan against the dollar after a strong sell-off this week, as interest rate differences between China and the United States remain large. Last Sunday, the Federal Reserve urgently eased monetary policy, reducing the key rate to almost zero.
Most Reuters respondents expected China to cut rates to help the coronavirus-affected economy.
“The absence of any reduction this month means that LPR is still only 10 basis points lower than at the end of last year, after a slight reduction in February,” said Julian Evans-Prichard of Capital Economics.
“But given that the economy is unlikely to return to normal until next year, further easing of monetary policy will be needed to help cope with the ongoing burden on the balance sheets of enterprises and households,” he added.
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